Demand:

Exam Practice 7
1) Consumer surplus is the difference between:
a) The price and the value to the buyer
b) The price to the buyer and the total cost
c) The reduced price and the normal price to the buyer
d) The price and the marginal utility to the buyer

2) The data describes a number of factors that might have influenced demand for farm
milk in the UK in recent years. Draw a demand curve diagram for each example,
explaining the effect on demand of the changes in:

a) The price of dairy products in UK supermarkets

Demand is the quantity of goods of any price that consumers are willing and able to
purchase over a period of time. The prices of dairy products went up as the cost of
the production fell, yet also as the spending power of consumers was weakened by
recession. Therefore demand for dairy products in UK supermarkets receded.
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b) The incomes of UK consumers

Demand is the quantity of goods of any price that consumers are willing and able to
purchase over a period of time. One of the main factors that impacts demand is the
income of consumers. With the recession from 2010 in the UK, consumers' incomes
were reduced therefore they were less likely to consume products that rose in price
such as milk. Therefore, the demand for milk would reduce as consumers are less
likely to pay for it with their incomes.
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c) World demand for dairy products
Demand is the quantity of goods of any price that consumers are willing and able to
purchase over a period of time. The world demand for dairy products has increased
due to the growth of low-income and middle income countries. The demand for milk
has increased because as the income of the population increases, they have more
disposable income to spend on food they wouldn’t get to try in poorer circumstances.
For example in China, the consumption of dairy products like milk powder and
cheese has increased, imported from Cornwall. The worldwide demand for dairy
products has increased, therefore the quantity of goods produced has increased in
order to accommodate the market in Asia.
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d) Scares about the quality of food purchased in the UK

Demand is the quantity of goods of any price that consumers are willing and able to
purchase over a period of time. Demand would decrease as consumers would be
less willing to consume the product due to bad press. However, the trust of
consumers would be gained if the product came from the UK farms. Demand is
highly influenced by advertising, framing, bias, policies, and news, therefore the scare
about the quality of food purchased in the UK that is of foreign origin makes
consumers skeptical therefore they are less likely to consume the product.
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3) Analyse, with the aid of a demand curve diagram the impact of ‘rising prices for dairy
products in UK supermarkets’ on the consumer surplus enjoyed by UK consumers on
dairy products.
Price

Quantity

Demand means the quantity of goods that consumers are willing and able to buy at
any price over a period of time. In 2014, the prices for milk rose to almost 35 pence
per litre. This was during a time of recession in which the incomes of consumers
faltered, leading to a lack of demand for dairy products as their prices increased. In
the diagram above the demand for milk shifts inwards due to the heightened price,
which is a contraction of demand as the quantity of milk demanded decreases due
to raised prices. Due to this, the consumer surplus, which is the difference between
what consumers are willing to pay for and the actual price, is substantial. Food prices
in the UK were on the rise and consumers likely valued the goods at a lesser price
than they bought them for.
 4) Discuss whether British dairy farmers should have increased the size of their herds of
dairy cattle in 2014.

K Intro: define demand, facts the excerpt states

Apply: state point, why, pros and cons

Analyze: prices going up, and why, inelastic demand, balanced prices compared to other
country

Evaluate: solution to cons

Demand is the quantity of goods that consumers are able and willing to buy at any price over
a period of time. In March 2014, the price of milk rose substantially despite the recession that
depleted the incomes of UK consumers. The rise in prices of dairy products wasn’t because
of a shortage, in reality it was due to the emerging economies of Asia, especially China. The
price of a liter of milk in pence has increased from around 17 pence in 2000 to almost 35
pence in 2014, which can be attributed to the financial crisis of 2008 which showed an
increase of about 10 pence per litre of milk. This growth in price was accelerated by the
rising Chinese economy.

To begin with, British dairy farmers would have benefited from increasing the size of their
herds of dairy cattle as many Asian economies expanded and the incomes of their
populations increased. Referring to demand, one of the main factors that impacts it are the
income of consumers. As the income increased, Chinese consumers had the disposable
income to spend on different products and expand their diets. This includes increasing their
consumption of dairy products. If dairy farmers expanded their herds of cattle then they
would be able to increase the quantity of the good and in turn lower prices for the market in
Asia, which would be a very big one as Asia has some of the most populated countries in the
world. Furthermore, this increase of production would even benefit the domestic economy,
as the products could also be sold in the UK at a lower price due to the increase of quantity
demanded. The reason why the prices of dairy products and milk were so high in the UK was
likely because farmers didn’t have enough cattle to accommodate the UK market for milk. If
farmers had expanded their herds then both the UK and China could be accounted for.

To contrast, the point of view that farmers shouldn’t expand their herds wouldn’t improve the
prices of milk, especially due to the recession crisis that caused the depletion of consumers'
incomes. It wouldn’t improve the prices of milk as the output would mostly be directed to Asia
which has a market that wants milk, therefore consumers are willing to pay higher prices for
it. If there were a higher quantity of goods then the prices could be dropped making them
available for more people in the UK. On the other hand, the trust of UK consumers is mostly
towards UK producers, and they would be more willing to spend money on UK produce
rather than foreign produce after a controversy surrounding horse meat being used in
minced beef products. With lowered prices due to increased quantity and the positive
connotations of UK produced dairy products, demand for milk would increase.

In conclusion, I believe that if the dairy farmers had increased the size of their herds, it would
lead to a decrease in the price of milk and an increase in the quantity of goods produced.
Consequently, demand for milk would increase in both the UK and China. The decrease in
price would be beneficial for those suffering from the financial crisis and the consumption of
milk would rise as more consumers would be able to afford it due to its low price.
Furthermore, the trust of UK consumers would be obtained as the production of milk would
be within the UK. Overall, it would prove to further increase the success of dairy farmers in
the UK.